Allotment rights in flats counted as a capital asset, supporting long-term gain treatment and possible Section 54 relief.

Rights acquired on allotment of specific flats, together with continuing payments to the builder, were treated as a capital asset for capital gains purposes, with the holding period counted from the date enforceable rights in the identified property arose rather than from the later registered conveyance. On that basis, the transfer was treated as giving rise to long-term capital gain because the period exceeded thirty-six months. Section 54 relief was considered capable of application to the transfer of such rights, but the factual question whether the capital gains were invested in a new residential house had not been examined. The denial of exemption was therefore set aside for fresh factual verification, leaving the alternative claim open.

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Issues: (i) Whether the right acquired on allotment of flats and payments made to the builder constituted a capital asset held for more than thirty-six months so as to attract long-term capital gains treatment. (ii) Whether deduction under section 54 of the Income-tax Act, 1961 was admissible on the transfer of such rights, and if not, whether the claim required factual verification for alternative relief.

Issue (i): Whether the right acquired on allotment of flats and payments made to the builder constituted a capital asset held for more than thirty-six months so as to attract long-term capital gains treatment.

Analysis: The right obtained through the allotment letter and continuing payments to the builder was treated as property of a kind held by the assessee within the meaning of the capital gains provisions. The holding period was counted from the date on which the specific flats were allotted and the assessee acquired enforceable rights in the identified property, not from the later registered conveyance. The definition of capital asset was understood broadly to include such rights, and the period of holding exceeded thirty-six months.

Conclusion: The transferred right in the flats was a long-term capital asset, and the resultant gain was long-term capital gain in favour of the assessee.

Issue (ii): Whether deduction under section 54 of the Income-tax Act, 1961 was admissible on the transfer of such rights, and if not, whether the claim required factual verification for alternative relief.

Analysis: Section 54 was considered applicable where a long-term capital asset connected with a residential house is transferred and the consideration is invested in a new residential house. The authorities had denied the claim on the footing that the assessee was only selling a right to obtain flats and that ownership in the strict sense had not matured. The Tribunal accepted that the assessee could be eligible for relief, but the factual question whether the capital gains were actually invested in the new residential house had not been examined.

Conclusion: The denial of section 54 relief was set aside for fresh factual verification, and the alternative claim was kept open for consideration before the Assessing Officer.

Final Conclusion: The long-term capital gains treatment was upheld in favour of the assessee, while the claim for exemption was not finally decided and was restored for factual examination.

Ratio Decidendi: A right acquired on allotment of a specific flat and supported by continued payments to the builder is a capital asset, and its period of holding runs from the date such enforceable rights are acquired for computing long-term capital gains.

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